For the first time, Constellation Energy Group is selling electricity to residents in another state.
Constellation has launched a residential supply business in New Jersey, promising up to 12 percent in savings and offering Target gift cards to persuade households to ditch their utilities and, instead, buy electricity from the Baltimore company. In the past few months, Constellation has signed up 19,500 customers.
With consumers watching their wallets amid the economic downturn and sharp drops in power prices, Constellation sees opportunity in expanding its business of selling electricity to residents across the country. The parent company of Baltimore Gas and Electric Co. also has begun competing against its BGE utility in Central Maryland, thanks to the deregulated energy market in the state.
Constellation's push into competitive residential markets comes as its other businesses have slowed. The company recently abandoned a long-term goal of developing new nuclear plants in the U.S., while its commodities-trading business is a much smaller operation after credit problems during the financial crisis two years ago. Moreover, the company's generation business is expected to earn less next year and post a loss in 2012.
Constellation's gas and electric supply business called NewEnergy is considered the company's long-term growth driver. The division, which also includes alternative energy products and energy efficiency services, is expected to account for up to 33 percent of the company's earnings this year and as much as 45 percent next year. The company hopes to enter the Illinois residential electric market early next year, while it is also eyeing Pennsylvania and Texas.
"What we're seeing is more and more customers are getting comfortable with making the choice," said Mark Huston, managing director of Constellation's retail energy business. "Think out five to 10 years from now, when customers become more and more comfortable."
A majority of U.S. homes still buy their power from their traditional utilities. Even though power markets across many states — including Maryland — were deregulated more than a decade ago, allowing suppliers to deliver power on existing utility lines, consumers have been slower to shop around for electricity than their commercial and industrial counterparts.
But that appears to be changing, albeit at varying speeds in different states, as more suppliers enter competitive markets and consumer awareness grows.
Still, educating consumers about electricity shopping remains a big obstacle for alternative suppliers like Constellation, energy analysts say. Signing up households can be a time-consuming and more expensive venture than commercial and industrial customers whose accounts are larger in volume, said Paul Patterson, an analyst at Glenrock Associates in New York.
"It's such a change for the average household to understand that they could choose and to make that choice process easy," added Sharon Reishus, head of the North American power service at IHS CERA, an energy consulting and advisory firm in Cambridge, Mass. "For most consumers, it's not a big enough part of the household budget to spend the time to figure it out."
In New Jersey, Constellation is marketing savings ranging from 10 percent to 12 percent depending on the pricing plans and the utility's price for electricity. A single-family customer of Jersey Central Power & Light, for instance, can save about $21 a month, or $252 a year, under a 30-month plan charging 10.4 cents per kilowatt hour, compared with the utility rate of 11.8 cents per kilowatt hour.
While Constellation has brand recognition in Maryland, the company is new to many in the Garden State, though the company has been selling power to commercial and industrial customers there for several years.
Constellation is not disclosing how much it is spending on a massive marketing campaign targeting more than 2.4 million customers served by New Jersey's two largest utilities PSE&G and Jersey Central Power & Light.
Since September, the company has sent out some 2.4 million direct mailings, bought billboards, including one on the New Jersey Turnpike, sticker advertisements in local newspapers as well spots at train stations.
Bruce Stewart, who joined Constellation in August as chief marketing officer for the retail business, said the company has a customer-friendly website where consumers can find frequently asked questions, sign up for a contract and use an online savings calculator.
Nearly 3 percent of New Jersey's 3.3 million residential electric customers have switched to alternative suppliers as of October, the most recent data available, according to the state's Board of Public Utilities.
In contrast, 11 percent of Maryland's nearly 2 million residential customers have signed up with a retail electricity supplier as of October, up from 5.1 percent in January.
In Maryland, Constellation is offering a two-year plan of 8.95 cents per kilowatt hour for BGE customers, which is more than a penny less than what BGE will charge between now and May.
While the residential market is nascent, Constellation executives see tremendous potential and point to the evolution of its commercial electricity business for parallels. Those customers first switched to Constellation to get the best deal, said Michael Kagan, Constellation's chief sales officer. "It didn't matter if you were talking to a hospital or steel mill. They said, 'What could I save versus the utility,' " he said.
But over time, commercial customers have become more interested in managing their consumption in addition to their energy costs, either by turning to alternative energy such as solar or lowering energy use during peak times. And Constellation executives say the company has become more like an energy adviser to help clients meet specific needs.
Constellation, one of the largest power suppliers in the U.S., provides electricity and gas and other energy services to 26,000 commercial and industrial customers nationwide, including 70 of the Fortune 100 companies.
Likewise, Constellation officials hope to see residents not only shop around for electricity but also manage their energy use, especially as technology evolves and makes it easier.
"You could get into it initially because there's a cost savings, but over time it could be 'How do I want to manage my costs?' " said Kathleen Hyle, who oversees Constellation's commercial businesses and fossil-fuel plants.
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